Futures Options on GBP/USD

Discussion in 'Forex' started by hhiusa, Jun 6, 2017.

  1. hhiusa

    hhiusa

    I have a question about the FOP on the GBP/USD. I looked at a March 2018 future. GBX put @ 1.2800 is $0.0293. The multiplier for the future is 62,500. Does this mean that one FOP contract costs 62,500 * 0.0293 = $1,831.25.

    I know that futures have neither strike nor time decay. The last for GBP 2018-03 is 1.3005. How is the futures price of the GBP calculated across time?

    The last trading day is 275 days away. What will the value of the future be 120 days from now if the underlying is trading at $1.2400?

    If the value of the future is $1.24 120 days from now, is the option price still calculated using the Black Scholes Model?

    The calculated option price for put @1.2800 for today is $0.0314 based upon a S_0 = $1.2906, strike = 1.2800, IV, days till expiry,...
    The calculated option price for put @1.2800 for 120 days from now based upon a future at $1.2400 = $0.0510
    0.0510/0.0314 = 62.4%
     
    victorycountry likes this.
  2. Overnight

    Overnight

    Excellent question. How can we determine that? I cannot imagine a way to do so.
     
  3. hhiusa

    hhiusa

    If the underlying is $1.2400, the futures price will not be the same. So, I don't appreciate your tone.
     
  4. hhiusa

    hhiusa

    275/365 = 0.7534
    155/365 = 4246
    1.3005 = 1.29000*(1+r)^(0.7534); r = 0.0108, which is the same the 6 month T-bill. This means they are using this as the risk-free interest for calculating F_0.
    F_0 = S_0*(1+r)^(n/t) = 1.2400*(1+0.0108)^(0.4246) = 1.24566
    1.29000*(1+r)^(0.7534) = 1.3005
    I think ??
    So the option would reflect the $1.24566, not the spot $1.24000
     
    victorycountry likes this.
  5. Option price is always calculated using BS model :)
    I hope you make a nice profit on the general election today
     
  6. They use either 3 month or 6 month T-bill rate.
     
  7. hhiusa

    hhiusa

    [T-t] would equal [(275/365)-(155/365)] ?

    So the multiplier is also multiplied by the option premium to determine the price of the contract?

    p.s. P(1.2465(S_t); 0.7546(T-t); 1.28000(K); 0.09(IV), 0.0108) = 0.0468/0.0317 = 47.6%*$1,831.25 per contract. ??
     
  8. You need to use the interest rate differential between GBP and USD, not tbill rate..
     
  9. hhiusa

    hhiusa

    Which is?
     
  10. I dont know, i dont have access to interest rate swap market data. You can probably use libor rates as approximation.
     
    #10     Jun 7, 2017